June 21, 2018

Amazon dinged by SCOTUS

The Supreme Court says states can force online shoppers to pay sales tax.

The 5-4 ruling Thursday is a win for states, who said they were losing out on billions of dollars annually under two decades-old Supreme Court decisions that impacted online sales tax collection.

The high court ruled Thursday to overturn those decisions. They had resulted in some companies not collecting sales tax on every online purchase. The cases the court overturned said that if a business was shipping a product to a state where it didn’t have a physical presence such as a warehouse or office, the business didn’t have to collect the state’s sales tax. Customers were generally supposed to pay the tax to the state themselves if they don’t get charged it, but the vast majority didn’t.

This makes brick and mortar stores like Walmart more competitive with president-Trump-unfriendly Jeff Bezos' Amazon because the non-sale-tax-paying discount effectively disappears. That may help rejuvenate brick and mortar retailers in the marketplace, but don't count on it; the trend is going to continue to be towards online shopping. But Amazon's unfair competitive advantage is effectively gone. Customers in states where sales taxes are high are hurt as well, if they were previously not self-paying the tax.

The most interesting fallout is actually the impact on state sales taxes. A state with a high sales tax, more often than not is going to be a liberal state. This ruling might in the short term generate more sales tax revenue and/or lower online shopping relative to store visit shopping. But ultimately online sales should normalize; there is a large disincentive to shop online relative to before as a result of newly enforced sales taxes. In a no state sales tax scenario, the impact will be non-existent. That just a superficial first look, but if states end up with more sales tax, then that could help the federal government potentially offload governmental services to the state level and thereby lower the annual deficit.

Even at first glance this is not an inconsequential ruling. More to come for sure.